Jonathan Wickham remembers that at age 14, maybe younger, he was involved in planning for the estate tax on his family’s 300-acre fruit farm — something the average teen might never have to think about.
As he grew up working on the Cutchogue farm, which has been around since 1661, he’d hear stories about other farming families who were confronted with the decision to sell parts, or all, of their land to satisfy an estate tax.
“All of us that grew up on the East End grew aware that planning needed to be done for that tax,” Mr. Wickham said.
Federal estate tax applies to the transfer of property when an owner dies. This year, estates with combined gross assets and taxable gifts exceeding $5.49 million are required to file the federal tax, according to the Internal Revenue Service, and the tax itself can be steep. Estate tax liability nationwide will total an estimated $19.7 billion in 2017, according to the Urban-Brookings Tax Policy Center, which provides analysis and facts about tax policy. That’s less than 1 percent of federal revenue.
While the estate tax is a major concern for local farmers, the tax is paid mostly by the top 10 percent of income earners, who pay more than 90 percent of it. The center estimates that only 50 small farms and closely held businesses across the country will pay any estate tax in 2017.
Local farm owners say that’s largely due to meticulous planning on their part, including transferring ownership before any principal becomes ill.
Frank Beyrodt of DeLea sod farms and his wife’s cousin Rick DeLea are part of a third generation of farmers. He raised concerns about the tax at a recent meeting between local farmers and Congressman Lee Zeldin (R-Shirley).
In an interview, Mr. Beyrodt said one way they try to mitigate the impact of the estate tax is by putting any new farmland they acquire in their names or the names of whoever plans to keep the farm going.
“Certainly my father in-law, Vinny Sasso, who is part of the second generation, is not getting into any new ventures,” Mr. Beyrodt said. “We’re taking the steps that every family would be taking, but it’s still gonna have an impact regardless, because if it’s not us, it’s gonna be our children and it just goes on and on.”
Mr. Beyrodt said he’d like to see the estate tax repealed or simplified. That is among President Donald Trump’s tax reform goals. Mr. Zeldin said in a statement last week that he supports full repeal of the estate tax and negative effects it has on family businesses.
“Overall, helping our farmers compete in the global marketplace, and sell more of their produce at home and abroad, will be an important part of the push to improve and simplify our tax code,” Mr. Zeldin said. “Current tax policy incentivizes the import of cheap foreign produce but doesn’t do enough to help our farmers export their products.”
One reason ongoing planning is necessary is that the tax is a moving target, Mr. Wickham said, adding that the law changes so much from year to year, it’s important to keep up to date. In 2010, the tax was temporarily repealed, he recalled.
“We’ve always taken seriously the need to plan for the estate tax,” Mr. Wickham said. “You can’t just set it and forget it.”
One of the stories Mr. Wickham and others heard growing up is often told by John Halsey, founder and president of the Peconic Land Trust. Mr. Halsey grew up in Bridgehampton next to a 10-generation potato farm owned by the Downs family, who had no option but to sell the land when a family member died and they were stuck with having to pay the tax.
In addition, Mr. Halsey said, tax penalties accrued because the sale of the land depended on getting permission to subdivide, which took time.
“Land here on the East End is very, very valuable, which makes this a very big problem for us specifically here on Long Island versus other areas of even New York State,” said Rob Carpenter, administrative director of the Long Island Farm Bureau.
Land costs alone “could put somebody over the top of the estate tax pendulum and require that farmers end up possibly selling land if they have not done estate planning practices,” Mr. Carpenter said.
That planning takes time and money, Mr. Carpenter continued, often requiring the help of lawyers and accountants to determine how to best prepare for the tax, whether it is finding discounts or exemptions such as unified credit.
Estate planning is a complicated issue and not a one-size-fits-all kind of exercise, Mr. Wickham said.
Strategies might include looking at the sale or donation of development rights, making the value within the land more liquid, he said, so that if a family is confronted with the tax, they wouldn’t necessarily have to sell land. He added that it’s “very fortunate” local towns have community preservation funds.
Mr. Wickham said eliminating the tax would further the cause for open space preservation on the East End.
Mr. Halsey said discussion of tax reform creates uncertainty for farmers because potential new policies are unclear, whether it’s eliminating the tax, modifying it or replacing it.
“At least they know now what the [current] consequences are and they can plan for that,” he said.
Caption: Tom Wickham at Wickham’s Fruit Farm in Cutchogue. (Credit: Courtesy Photo)